Interest rate commentary for 23 May – 27 May 2016
Last week Australia’s bond and money markets were dominated by central bank minutes; the RBA’s May minutes introduced a sliver of doubt regarding further rate cuts while the FOMC April minutes firmed up the likelihood of US rate rises sooner rather than later. This week, local economic data was restricted to tier two items such as Q1 construction and capex while offshore data was also more of a secondary nature.
Even as RBA governor Glenn Stevens gave comfort to interest rate doves, Fed Reserve Chair Janet Yellen was doing her best for interest rate hawks. There is a feeling the US Fed has looked at pricing in US cash markets and decided markets are not sufficiently prepared for another rate rise. Hence, the procession line of US officials talking about conditions required for rate normalisation.
|90d Bank Bill%||1.97||-0.02||2.00||1.97|
|Aust 3y Bond%*||1.59||-0.01||1.64||1.56|
|Aust 10y Bond%*||2.26||-0.05||2.33||2.24|
|Aust 20y Bond%*||2.86||-0.07||2.96||2.87|
|US 2y Bond%||0.91||0.03||0.92||0.87|
|US 10y Bond%||1.85||0.01||1.87||1.83|
|US 30y Bond%||2.65||0.02||2.66||2.62|
|* Implied yields from June 2016 futures|
Even so, yields around the world remain low, with 10 year government bonds of most advanced countries yielding below 2%. In Australia, semi-government bonds and corporate bonds have followed government benchmark yields lower. State government issuers have been relatively quiet recently but corporate issuers have been active.
There’s one or two cash accounts which are yet to adjust their rates down after the RBA’s rate cut but essentially they are now all done. Changes to term deposit rates have been many in recent times but not in a way pleasing to investors. Readers interested in the best rates around should be able to find one or two things of interest in our tables.
BBSW rates fell a little more during the week adding to the pressure on investors to maintain incomes. Investors are increasingly being forced to decide if they can accept higher levels of risk from other sorts of assets, such as hybrid securities and ASX-listed notes. While these types of investments are not in the same risk class as term deposits and cash accounts, they are issued mostly by the same issuers who offer the term deposits and cash accounts whose rates are falling. Add in the presence of margins which are closer to the top of the historical range than they are to the bottom and these alternatives are difficult to ignore. Our tables have a complete wrap-up of the best yields available and our charts make it simpler for readers to identify the stand-outs.
We hope you enjoy this week’s YieldReport.
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April 2016 monthly interest rate commentary
Bond yields were mixed in April with 3 year bonds falling slightly (-3bps to 1.85%) and 10 year and 20 year bonds rising slightly (+3bps to 2.52% and +4bps to 3.11% respectively). Overall, bond investors in any segment should have finished April with a positive return. The rise in yields was gentle enough for coupon payments to offset lower market prices when combined with a steepening yield curve, leading to net positive returns for all segments of domestic bond market. The government bond index fared worst but even it managed a 0.136%. The bank bill index returned a predictable 0.199%, the composite bond index returned 0.259%, the semi index 0.308% and the floating rate note index returned 0.358%. The corporate bond index was April’s winner, returning……Click here to read more
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